Palantir Stock vs. TSMC Stock: Wall Street Advises Buying One and Selling the Other

Global artificial intelligence The artificial intelligence market is set to grow rapidly, with analysts giving varying estimates of its future size. Analyst estimates of the size of the global artificial intelligence market vary widely, from hundreds of billions to more than several trillion dollars by the end of the decade.

While the actual size of the market may be debatable, there is no denying that AI is changing the way we live, work, learn and play. It’s no surprise that AI has become a major tailwind for many companies across industries. Palantir Technologies (PLTR -1.22%) And Taiwan semiconductor manufacturing (TSM -0.72%) These are two such stocks that have benefited from this tailwind, and they are up about 140% and 85% respectively in 2024. Despite the solid gains, Wall Street expects Palantir shares to lose some of their gains, while Taiwan shares are expected to see Semi’s price rise even further in the coming months.

The average price target for Palantir stock on Yahoo! is $28.85. Finance, which would imply a drop of almost 30% from the current share price of $41. Taiwan Semiconductor has an average price target of $217.81, suggesting 12% upside from its current price of $193.

While target prices are not very reliable in predicting the future trajectory of any stock, they can prove to be an indicator of investor sentiment towards a stock. Against this background, there are some details to consider before investing in Palantir or Taiwan Semi.

Palantir

As a leading player in data analytics and machine learning, Palantir helps government agencies and commercial clients make sense of massive amounts of structured and unstructured data. The company’s recently launched artificial intelligence platform (AIP) is also proving to be an important catalyst for growth as governments and commercial clients increasingly use large language models and generative AI solutions to improve efficiency and productivity.

AIP differentiates itself from its competitors by its unique ability to move enterprise AI solutions from prototype to production at scale. The transition from prototype to production has become a major challenge for businesses around the world. Palantir’s ability to quickly deploy enterprise AI solutions to solve business problems in real time is proving to be a key differentiator for the company.

Palantir’s robust AI solution helped the company quickly attract new customers and close high-value deals. In the second quarter of fiscal 2024 (ended June 30, 2024), the company’s customer base grew 41% year-over-year to 593. The commercial segment experienced exceptional growth, with total commercial customers up 55% year-over-year to 467. end of the second quarter. In the second quarter, the company also closed 96 deals worth more than $1 million, of which 33 were worth at least $5 million and 27 were worth at least $10 million.

Government-owned Palantir is also showing strength amid increased military investment by the U.S. and allied countries to modernize its technology infrastructure. Given the growing demand for artificial intelligence and data analytics in the defense sector, Palantir is well positioned to win new contracts and expand existing contracts with government agencies around the world.

Palantir currently trades at a price-to-sales (P/S) ratio of 40 and a price-to-earnings (P/E) ratio of 246. Wall Street analysts expect Palantir’s revenue to grow 24% and 20.6% next year. for fiscal years 2024 and 2025, respectively. Earnings per share are also estimated to grow 44% and 19.4% in 2024 and 2025, respectively. Looking at these growth estimates, Palantir’s sky-high valuations don’t seem justified, although they are good predictions for a fast-growing company. The high valuation essentially leaves no margin of safety for retail investors.

It makes sense for retail investors to wait for a pullback before buying shares in these growth stocks.

Taiwan semiconductor manufacturing

Leading independent contract manufacturing player Taiwan Semiconductor is also benefiting significantly from extraordinary growth in demand for server AI processors (GPUs, CPUs and AI accelerators) for model training and inference in data centers and enterprise applications. artificial intelligence. The company has developed close relationships with virtually every AI innovator, including many of the hyperscalers that are developing their chips.

With the AI ​​demand cycle in the early stages and Taiwan Semi focused on increasing capacity and capacity utilization at its factories, the company is well positioned to benefit from this tailwind. Subsequently, the company expects server AI processor revenue to more than triple in 2024 to account for an average percentage of total revenue.

In addition to artificial intelligence, Taiwan Semi also serves other high-performance computing (HPC) applications, including data mining and analytics. HPC use cases accounted for 51% of Taiwan Semi’s revenue for the third quarter of fiscal 2024 (ended September 30, 2024).

Taiwan-based Semi has made significant progress in developing and commercializing advanced process technologies. The company’s advanced technology nodes (7 nanometers and below) are already in high demand for the production of complex chips, especially for artificial intelligence applications. In the third quarter of fiscal year 2024 (ended September 30, 2024), advanced process nodes (3nm, 5nm and 7nm) collectively accounted for 69% of the company’s wafer revenue (revenue generated from the sale of semiconductor wafers) .

In addition, Taiwan Semi is also focusing on power planning for its next-generation 2nm node, which is already attracting more customer interest compared to what was seen for the 3nm process node. In 2024, the company plans to invest 70% to 80% of its $30 billion-plus capital expenditure in advanced technology nodes. Taiwan Semi is also expanding production of advanced technology units outside of Taiwan to reduce the risk of geographic concentration. The company has planned three plants in Arizona, which will also help strengthen its ties with key customers. The increased investment will lead to even greater growth in Taiwan Semi’s revenues and profits in the coming years.

Given Taiwan Semi’s technological superiority in advanced process technology and the growing demand for cutting-edge technology nodes in artificial intelligence and high-performance computing applications, the company is poised for a multi-year wave of growth.